Resetting NAV to produce fake track record?

Discussion in 'Wall St. News' started by jerryz, Aug 4, 2006.

  1. jerryz


    lol can anyone explain how this works?

    "All I needed was a fabulous track record, which, it turns out, could be arranged. A woman who had worked for a company that sets up hedge funds in the Caymans - Ms. Caymans, I'll call her - gave me this simple yet invaluable tip: Hire an auditor to reset your NAV (net asset value) after you've had a good quarter. Ms. Caymans said, "If you're trading your own money to start, no one will know.""
  2. I attended this conference and I think this article is full of hyperbole by a reporter determined to demonize the HF industry.
  3. ktm


    There are enough people resetting their own records without resorting to a third party. I see countless funds altering past year returns, cutting back drawdowns and changing numbers - not sure why or how they get away with it.

    Better yet, new funds coming into the game with instant records back to 02 or 03, then some checking reveals they didn't get NFA approved until 6 months ago. I wish my lawyer had let me add all my personal account and "pro forma" numbers to my record. I don't see anyone getting slapped on the wrist for this stuff.

  4. I don't know about altering past year returns, that's fraudulent unless it's for a valid accounting reason or as a result of an audit.

    As for new funds having instant records... using the NFA as a test is not sufficient. How about if the funds started off under an NFA exemption are they not allowed to use their performance history prior to their NFA membership??
  5. You do what you have to do to make the #s. :)
  6. ktm


    Generally, the company needs to be in existence and you should be trading client and/or your own funds under that umbrella. This includes all the usual backoffice accounting and audits, etc... It is certainly plausible that they were operating under an exemption, but I see some who were still registered as APs with another fund 2 years after the new company started a record.

    I was told the company needed all the proper registrations and setup complete BEFORE trading could begin. I had a great track record that I would love to have brought in. I didn't like it so I got a second opinion from a different firm - same answer. I guess that the moral is just because something isn't allowed doesn't mean it isn't being done in this business.

  7. Yes, it is true that you cannot use a track record for another entity as the track record for a new entity. That notwithstandng, nothing prevents you form disclosing prior track records to potential invetsors as far as you disclose that such track records are NOT for the currrent vehicle you market. It is then up to the investor to determie how to assess or discount such prior track records.

    I know for example a fund manager who discloses his persoanl track record for the period prior to launching his fund but he also discloses that this was prior to the fund's launch. You only see this info in his marketing material (separate from the fund's track record) and he does not list it as the fund's track record in databases. You see the difference.

    Now if someone incorporates a track record from a personal account or some other entity and uses it in part or in whole as the track record for a new fund, then that is wrong.
  8. jerryz


    how are you "seeing" the alterations? what are you looking at?

    guys, if you know, can you explain how the NAV gets reset? does "reset" simply mean changing the number so you show better performance? if yes, why would an auditor do this?

  9. jerryz


    the article says you guys line up against the wall with a number on top of your head. when potential investors come in, you can't talk to them unless they approach you. is this how it worked?

  10. " You do what you have to make the numbers" What are you talking about ? The whole point is they are not ACTUALLY making the numbers. It's usually called fraud.
    #10     Aug 5, 2006